Choosing a Debt Resolution Strategy

by Susan Paige on May 27, 2020 · 0 comments

There are a number of different ways to deal with burdensome financial obligations. They range from attacking it on your own to filing for bankruptcy protection. The method you select will vary depending upon several different factors. These include the total amount of your debts, your ability to make payments and how far gone the situation is. Taking all of these factors into consideration when choosing a debt resolution strategy will help you achieve the best possible outcome. 

Let’s look at the different approaches you can take.

Do It Yourself

Perhaps all you really need to do is take another look at your expenses, trim the excesses and put more money toward paying off your debt. The first step is to create a spending plan based on all of your sources of income and all of the things you spend money on. 

If there’s more coming in than going out and you’re struggling to pay your bills, all you probably need to do is redirect some of that cash. If it’s the other way around, look to see what you can cut so you can satisfy your obligations. 

Credit Counseling/Debt Management

You should seek professional help If the above proves too difficult, or fruitless. A credit counselor will go over your situation in a more dispassionate manner and find the areas in which you can cut back. 

If things are looking dire, the counselor might recommend a debt management program, in which they take over paying the bills for you. You’ll deposit money into an account every month and they’ll use it to satisfy your creditors. Just be careful to choose a counselor from an accredited source.

Debt Consolidation

Taking out a loan to pay off other loans might seem counterproductive, but it works — when done properly. This can take many different forms including transferring balances from high interest credit cards to one with zero interest for a limited period of time. Just make sure it’s enough time to pay it off in full. 

You can also get a personal loan to encompass all of your debts, take a home equity line of credit, or refinance your home and use the proceeds to pay off your debts. These approaches give you one debt to pay each month rather than several. They also hold the potential to lower the overall interest rate you’ll pay and reduce the amount of your monthly payments. There are some pros and cons to consider though. 

Debt Settlement/Negotiation

If things are too far gone for management to be effective, the next debt resolution program to consider is debt settlement. In most cases, this involves contacting a firm to negotiate with your creditors to settle for a reduced amount in exchange for timely payment.

As good as this sounds, there are a number of consequences that are less pleasant than those of any of the above strategies. However, they are better than those of the strategy below. Do some research to thoroughly understand the ramifications of this option before undertaking it. 

Bankruptcy Protection

Of all of the options listed here, this one will leave you with the most lasting damage to your reputation. However, it is an effective method and lots of people take it. A bankruptcy filing stays on your record for between seven and 10 years and makes it very difficult — as well as expensive — to get credit in that interim. 

However, if you’re in a situation in which you can’t reach a settlement agreement with your creditors, consolidation won’t work, and counseling — as well as management or doing it on your own have proven impotent — bankruptcy is probably your best option. However, it’s always prudent to work through the options in the order they are presented here when choosing a debt resolution strategy.

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